Thomas Lee, JP Morgan’s Chief Equity Strategist has been and remains very bullish about equities. In a recent note Lee highlighted 7 reasons why we remain in a secular bull market (via Sam Ro of Business Insider):
- “Global economy is turning (or less bad)” – Despite the lagging European and Japanese economies, JP Morgan’s economists see global growth picking up in the second half of 2012 driven by easy monetary policy in the emerging markets and a tailwind in inventory trends.
- “We see a US durable goods boom larger than 1990s” – Durable goods spending as a percentage of GDP is a whopping three standard deviation below its long term average. The rebound will be fueled by US housing starts, which are coming back.
- “Corporate are the incremental buyer of equities” – Corporate cash balances are still high and share buybacks are surging. Furthermore, US equity profit margins are benefiting from a secular shift toward sale from foreign sources.
- “High-yield markets tell us fair value P/E > 15X” – Equity risk premiums are high. A 15 multiple on the S&P 500 would get you to 1,600.
- “Beta chase into year-end” – Fund managers are way under-exposed to stocks, and they will rotate their assets in.
- “No contrarian sell signals yet…” – Major sentiment indicators continue to show that investors are bearish on stocks.
- “15% chance of a fiscal cliff” – The market is pricing in overblown fears of the fiscal cliff.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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